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Latin America鈥檚 fintech industry is booming, and U.S. venture capital firms are not only taking notice, but are backing that growth with some significant investments.

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More than $7 billion has been invested into Latin American financial services companies since 2016, according to 小蓝视频色情网页版 data. Annual investment dollars have also grown since 2018, rising to $2 billion in 2020. So far this year, dollars invested in the sector are already neck-and-neck with last year鈥檚 total, meaning 2021 investment will almost certainly eclipse 2020.

A big chunk of that investment has gone to a single company: Digital banking giant , which has raised $950 million of its $1.5 billion in total known funding in just the past three years.

Since the start of the year, several U.S. venture firms voiced their intentions to focus on Latin America鈥檚 financial technology firms, including and , while laid out a .

鈥淲hat we are witnessing in real time is the flywheel of Latin American innovation,鈥� , a partner at Clocktower, told 小蓝视频色情网页版 News. 鈥淚t is fun and exciting, and we are honored to be a part of it. I have no doubt that what happened over a five- or six-year period with U.S. fintechs could happen in 18 months in Latin America.鈥�

Inside the new funds

In March, Clocktower launched the firm鈥檚 first venture capital fund dedicated to financial services innovation in Latin America, targeting a total of $25 million.

Savage initially set out to gradually raise capital for the fund. The reality was different: Rather than months, it only took weeks, and shortly after announcing the fund, Clocktower committed to eight investments and four pending 鈥� a sign that everything is moving quickly as opportunities are recognized, he added.

He sees a compelling story happening in Latin America around fintech over the next 20 years, but believes we are still in the early innings of a big wave of venture capital being infused into the region broadly, being led by fintech investments.

鈥淧art of our job as early-stage investors is to anticipate the capital flow that will provide that rocket fuel for growth,鈥� Savage said.

QED sees a similar phenomenon. The firm鈥檚 first investment into the region was in Nubank in 2014, said , partner and head of international investments at QED.

Now with an established presence, QED announced the Fontes fund in May; $12 million targeting pre-seed and seed fintech startups in the region. The name is the Latin word for fountains.

鈥淲e didn鈥檛 know a lot about the region when we made the Nubank investment, but we figured we would learn about the geography as we went along,鈥� Cilluffo said. 鈥淥ur new fund, Fontes, is us doubling down in the region.鈥�

One of the early lessons QED learned was that banking in Latin America is highly concentrated. Four big players may control 80 percent of banking in Brazil, Cilluffo said. Little competition and a focus on more affluent customers has led to higher costs for services, such as getting a loan, and underwhelming experiences for customers who do not fit into that category.

In Mexico alone, it is estimated that , with millions more considered 鈥渦nderbanked,鈥� meaning their bank doesn鈥檛 provide a wide range of services, or they are generally unhappy with the service.

That鈥檚 opened the door for fintech startups to come in with lower costs, better customer experiences — such as digital applications — and even offer options typical to the U.S., but not widely available in Latin America, like home equity or car loans. Those services are resonating with customers, according to , QED principal and head of the Fontes program.

鈥淔intech鈥檚 success in Latin America is mimicking behaviors of the underbanked, which is still a large part of the population,鈥� Gadala-Maria said in an interview. 鈥淧ayment systems like in Brazil are enabling more fintechs to offer services and meet customers where they are at.鈥�

Although QED typically comes in at a Series A level, positioning Fontes at an earlier stage is a natural extension of what the firm is doing and enables it to leverage Latin America鈥檚 fintech evolution, she added.

鈥楥ompetition is increasing鈥�

Fintech continues to be a leading category in both deals and dollars invested due to the opportunity to make good returns, according to , manager of venture capital for the , a not-for-profit membership organization supporting the growth of the private equity and venture capital industry in Latin America.

The level of sophistication in targeting certain customers has grown, too. Starting with debit cards, companies are now developing apps for niche markets, such as teenagers or Gen Z, as well as adding features to be more inclusive of customers not already using a bank, Ramos de la Vega said.

鈥淥ne of the reasons lending and credit platforms have had success is the ability to underwrite a huge segment of the population,鈥� he added. 鈥淐ompetition is increasing, but there is the need for a bigger skill set because financial needs are changing and people are more educated with technology.鈥�

The venture capital network is also growing. In addition to QED and Clocktower, other U.S. firms have been dedicating dollars to the region over the past five years, including , and , which led spend management company 鈥檚 round in March and followed on a in May, according to 小蓝视频色情网页版 data.

Local venture capital fund managers are also eager to partner with foreign firms after growing and developing the ecosystem for more than a decade, Ramos de la Vega said.

鈥淟ast year we saw 83 percent of local investors be part of local deals, while 39 percent were involved in deals with international investors,鈥� he added. 鈥淔oreign fund managers see local firms as good resources when it comes to understanding fintech. The dynamic is more of a collaboration approach.鈥�

Partner also sees it as collaboration versus competition. Last month, the seed-stage venture firm, with offices in S茫o Paulo and San Francisco, announced the first close 鈥� $18 million 鈥� of its second fund, targeted at up to $40 million.

鈥淲e are proud to collaborate with most of the funds, and view them as a trusted partner looking at the region,鈥� he said in a recent interview. 鈥淚t is unique to be part of the rounds and not competing directly. We鈥檝e been able to build relationships with funds across the U.S. and Europe.鈥�

The future of LatAm fintech

All of the venture capitalists we spoke with said Latin America has no shortage of interesting fintech investment prospects. And, unlike the U.S., there is still some runway for companies to grow without a dozen competitors appearing soon after launch, Cilluffo said.

鈥淲e feel good about our place in the ecosystem and its development is fun to watch,鈥� Cilluffo said. 鈥淲e are excited about the pace of change, and there are no signs of it slowing down.鈥�

Opportunities for fintech in the region are already blurring into other sectors, such as real estate and聽 e-commerce, as well as human resources in payroll and pension management, Ramos de la Vega said.

In addition, the regulatory environment is improving, particularly in countries like Mexico, where many fintech companies are awaiting approvals, he added.

鈥淭he regulatory aspect is changing, and great progress has been made in Mexico since 2017,鈥� Ramos de la Vega said. 鈥淭here is a big pipeline of companies waiting for regulatory approvals, but we expect that to get moving in the next year.鈥�

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